Inflation is a gradual increase in the prices of goods and services in an economy. Because of inflation, same quantity of goods and services purchased will cost more to consumer by rise in prices. Inflation is also a sign of growing financial power of consumer and on the other hand it may also be reason of government to have control our resource consumptions. Economic growth is also an outcome as a result of inflation when more income received to the seller will increase its further capability to buy. Nevertheless, inflation is always seen as a factor creating uncertainty in market if the percentage rise over gradual periods is not as per expectations of consumer. Unstable trend of inflation may weak the consumer confidence and their motive to spend and save will be affected with high strung. There would be two motives prevailing in the open market. Sometimes, there would be a tendency when majority of people will start bulk buying to have basic needs commodities in stock with the perception that prices will raise and make good expensive. This spending motive is called “transactional motive”, on the other hand, some of them will likely to secure the purchasing power of their money by investing it property thus going into a “precautionary motive”. Either way inflation is creating uncertain behavior of consumer towards spending.
No economy is protected from inflation whether planned or sudden. Social, technological and economical factors will force the desired change in level of prices. When prices are rising, this is called inflation. In specific market segments like fuel, medicines and education, over period of time there is reduction in prices also, this is called deflation. Government keeps a careful watch over rising living standard, resource utilization as per supply available as well as the need to maintain the benchmark; Along with this various other factors are reasons of inflation avoidably or unavoidably. There are some natural or seasonal factors that effect demand of certain good and services during specific season, so resulting in price rise during that season. This inflation is seasonal inflation. Natural disastrous and wars also result in inflation that usually last shortly depending upon the readiness of economic recovery of that nation by successful government policies. Rise in production and delivery cost will also push seller to charge more mark up hence rise in prices of goods to be sold. This factor is called cost-push inflation.
Rising living standard and purchasing power of public due to more disposable income available to spend will also result in price increase, when the rising demand is more than the supply of resources available. In order to shrink or reduce this rising demand to remain within the limits of supply available, government increase the prices. This also happens in case of boom economy when more profits and income are coming to public and they are able to buy more goods than required or motive is toward luxury, in such cases in order to stabilize demand, rise in prices is the best solution.